For Immediate Release
Wednesday, February 27, 2002
Worker Input on Pensions Key to Avoiding Another Enron, AFSCME Expert Testifies Before Congress
WASHINGTON —Greater worker participation in corporate governance, more reliance on defined benefit plans, and much stronger federal regulations are essential to protecting employees' retirement savings in the future, an expert for the American Federation of State, County and Municipal Employees (AFSCME), AFL-CIO, testified today before the workforce subcommittee of the U.S. House of Representatives.
Speaking on behalf of the labor community before the House Education and the Workforce Subcommittee on Employer-Employee Relations, Richard Ferlauto, director of pensions and benefits policy for AFSCME, pointed to the serious conflicts of interest evident in the way Enron executives pressured employees to concentrate their retirement assets in the company's stock through its 401(k) defined contribution plan.
"As Enron workers painfully discovered, employers have interests that conflict with sound retirement policy. Fundamentally, employers too often want to shift investment risk in retirement funds onto workers who cannot afford to bear it on their own, and employers cannot resist the temptation to view worker funds as a financing source for their own firms," Ferlauto testified.
Only by requiring equal representation of workers on pension boards can the federal government help insure that public and private employers protect the interests of average worker shareholders, Ferlauto told the committee. In addition, employers should offer more defined benefit plans, and other federal regulatory changes are needed such as removing restrictions on when employees can sell company stock contributions and ordering 401(k) plan sponsors to provide independent investment advice.
Ferlauto noted that AFSCME members have their retirement funds invested through public retirement systems, many of which actively engage in corporate governance activities. These serve as a check on corruption and mismanagement by corporations held in their investment portfolios.
"We have worked closely together with those funds to challenge bad corporate governance practices — excessive executive compensation, auditor conflicts, corporate boards that are in the pockets of managers they are supposed to oversee. But we need help from Congress in the face of an inadequate response from the regulators," Ferlauto added.
